Q4 2023 VTEX Earnings Call

Audra: Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to VTEC's fourth quarter 2023 financial results conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.

Good afternoon. My name is odd right and I will be your conference operator today.

At this time I would like to welcome everyone to the V tax fourth quarter 2023 financial results conference call.

Today's conference is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad.

Audra: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. At this time, I'd like to turn the conference over to Julia Votard-Fernandez, Investor Relations Director. Okay, let's go ahead.

Sorry, Your question Press Star one again.

At this time I would like to turn the conference over to Julia Buttered Fernandez Investor Relations Director. Please go ahead.

Julia Votard-Fernandez: Hello, everyone, and welcome to the VTEX Earnings Conference call for the quarter ended December 31, 2020. I'm Julia Vardar-Fernandez, Industry Relations Director for... Our Senior Executives presenting today are Geraldo Tomas Jr., Founder and Co-CEO, and Ricardo Camatas-Adre, Chief Financial Officer. Additionally, Mariano Gomirez Faria, Founder and Co-CEO, and Andres Polidoro, Chief Service Officer, will be available during today's Q&A session. I would like to remind you that management may make forward-looking statements related to such matters as continuous growth prospects for the company, industry trends, and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations, and projections about future events.

Hello, everyone and welcome to this if he picks earnings conference call for the quarter ended December 31st subject to be free and you'll hear about her Fernandez Investor Relations director for VX, Our senior six record date, presenting today are get out of the commercial in your comms vertical seal and they've Gotta look on my preferred day, Chief Financial Officer.

Have you suddenly Mariano Vermeer cardiac founder and co CEO and then they probably had a good surge officer will be available during today's Q&A session I would like to remind you that management may make forward looking statements relating to such matters as continued growth prospects for the company industry trends and product and so she initiative.

These statements are based of course, everybody that information and our currently assumptions expectations projections about future events, while we believe that our assumptions expectations and protections are reasonable in view of the Gorenberg available information you are do you not to place undue reliance on these forward looking statements certain risks and uncertainties are described under risk.

Julia Votard-Fernandez: While we believe that our assumptions, expectations, and projections are reasonable in view of the currently available information, you are due not to place undue reliance on these forward-looking statements. Certain risk uncertainties are described in the risk factors and forward-looking statement sections of BTEX Forms 20-F for the year-ended December 31, 2020, and other BTEX filings with the U.S. Security and Exchange Commission, which are available on our investor relations website. Finally, I would like to remind you that during the course of this conference call, we may discuss some non-GAAP measures. A reconciliation of these measures to the nearest comparable gap measures can be found in the fourth quarter 2023 earnings press release available on our investor relations website. Now, let me turn the call over to Geraldo.

Factors and forward looking statements sections upbeat tax forms 20-F for the year ended December 31st.

<unk> and other filings within the U S Securities and Exchange Commission, which are available on our Investor Relations website. Finally, I would like to remind you that during the course of this conference call. We may discuss some non-GAAP measures.

Creation of these measures to the nearest comparable GAAP measures can be found in the fourth quarter. It turns into three earnings press release on our Investor Relations website now let me turn the call over to sit out did elder the floor is yours.

Geraldo Tomas Jr.: Geraldo, the floor is yours. Thank you, Julia. Welcome, everyone, and thanks for joining our fourth quarter 2023 earnings conference. In reflecting on our performance throughout the year, it's evident that despite navigating a persistently uncertain macroeconomic landscape, we have consistently surpassed expectations quarter after quarter. The fourth quarter of 2023 was no exception, with GMV and revenues growing 38% and 34% year-over-year in U.S. dollars, respectively. Our performance is a testament to the resilience of our sticky enterprise customer base, which affects neutral same-store sales and net revenue retention, which reached 15% and 107%, respectively, in 2023. And the successful onboarding of new customers onto our platform. Beyond our robust top-line performance, our business model also came to the fore, as demonstrated by our operational leverage, which Ricardo will cover later. In our history, we've built a strong, long-lasting enterprise customer relationship. As evidence, we increased the number of customers with annual recurring revenue above $250,000 to $126,000, up from $94,000 last year. And these customers increased their online store count to 692 from 557. Additionally, we increased our global presence to 43 countries from 38 countries last year.

Thank you Julia.

Welcome everyone and thanks for joining our fourth quarter 2023 earnings conference call and reflects cumulative outperformance throughout the year.

Thank you Dan.

Now if we gave you a persistently uncertain macroeconomic landscape, we have consistently surpass expectations quarter after quarter.

The fourth quarter of 2023 was no exception with Jim Vena and revenues growing 8% and 34% year over year in U S dollars respectively.

Our performance is a testament to the resilience of our Tiki enterprise customer base, which FX neutral same store sales and net revenue retention reached 15%.

And then 7% respectively in 2023.

And the successful onboarding of new customers.

Got it.

Beyond our robust top line performance our business model also came to the forefront as demonstrated by our operational leverage that you would call them data.

In our history with beauty strong low glass enterprise customer relationships.

We increased the number of customers with annual recurring revenue above $250000.

126 up from 94 last year and this customer has increased.

Store count to 692.

500.

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Additionally, we increased our global presence to 43 countries from 38 countries last year.

Geraldo Tomas Jr.: Our continuous progress in the top-tier customer base not only highlights our commitment to enterprise customers but also our product market fit around the globe. This year, we have achieved significant commercial milestones. Some of the net new customers that went live on our platform were Beauty Counter, CornerUp, Hearst, Kaiser Roth, and Pierce Manufacturing in the US, Rainbrew in Canada, and Auchan Hunter-Douglas and Probe Beauty in Europe.

Our continuous progress in the top tier customer base, not only highlights our commitment to enterprise customers, but also our product market fit all around the globe.

This year, we have achieved significant commercial milestones.

Of the net new customers that went live a lot blocker for more beauty counter coordinate horst.

And PC manufacturer in the U S Railroad in Canada, and Oh sure Hunter Douglas <unk> beauty in Europe. We also have extended with existing customers such as Colgate mozzarella, only levered and too many countries around the globe.

Geraldo Tomas Jr.: We also have expanded with existing customers such as Colgate, Motorola, Unilever, and Whirlpool to many countries around the globe. Now, let me go to the newly added customers during Q4 of 2023, including Biscuit, Jon Jon, Obabox, Oscarine, and Tiffany in Brazil, Megatendez and Bissau in Colombia, Macondo in Italy, 7-Eleven, Chapur, and Voight in Mexico. Hunter Douglas in the Netherlands, Yate Market in Peru, and Hurston Shop Hero in the U.S.

With the segue, let me go to the newly added customers during Q4 of 2023.

Including discrete Joe Joe <unk> blocks or screen, and Tiffany in Brazil, Mega tenders and be solely in Colombia, Macondo in Italy, 711, shampoo and void in Mexico Hunter dog lodging in the Netherlands, you ate market in Peru.

Lou and host and shop here in the U S.

Geraldo Tomas Jr.: In addition to attracting new customers, we have also focused on strengthening our relationship with existing customers, actively supporting the growth initiative. During the fourth quarter, several premier brands and retailers chose to expand their operations with us, opening new stores and further integrating with us. This includes Carrefour, who added a new store in Brazil, and Atacado, now operating seven stores in Latin America.

In addition to attracting new customers. We have also focused on strengthening our relationship with existing customers actively supporting the growth initiatives during.

During the fourth quarter tableau Premier brands and retailers chose to extend their operation with us opening new stores and further integrating with US. This includes kind of food who added a new store in Brazil attack.

Now operating seven stores in Latin America, Colgate, who added a new store in the West GTA scheme now operating in Brazil, and the U S. Both with Beecher C and <unk> models.

Geraldo Tomas Jr.: Colgate, who added a new store in the U.S., PCA Scheme, now operating in Brazil and the U.S., both with B2C and B2B models. Motorola, who added a new store in Ecuador, now operating in 20 countries across North America, Latin America, and the Middle East. Oshkosh Corporation, who added a new store in the U.S., Oshkosh Airport Products. Together with Pierce Manufacturing, they are now operating two B2B stores in the U.S., and ProBeauty, who added a new store in Romania, Eternal, now operating both B2C and B2B stores in Romania. In 2023, we achieved remarkable milestones in the digital commerce realm. We started the year being recognized as established in Gartner Peer Insights Voice of the Customer. In the second quarter, IDCs acknowledged us as a major player, and we achieved medals in all 24 categories of the 2023 Paradigm V2B combined, being the exclusive vendor to secure a gold medal for marketplace product capability.

Who added a new starting near corridor now operating in 20 countries across North America, Latin America and EMEA.

Loss cost Corporation, who added a new store in the U S. Oshkosh Airport products together with Bruce money factory.

Now operating <unk> stores in the West and a beauty who added a new story, Romania at terminal now operating both BGC and <unk> stores in Romania.

In 2023, we achieved remarkable milestones in the digital Commerce will we started the year being recognized as established in Gartner peer insights voice for of the customers' digital Columbus.

In the second quarter eye disease, and knowledge as a major player and we achieved meadows in all 24 categories of the 2023 paradigm to become by being the exclusive vendor to secure a gold medal for marketplace product capabilities.

Geraldo Tomas Jr.: In the third quarter, we were named a visionary in Gardner's Magic Quadrant for Digital Commerce and became the only vendor ranked in the top five for all use cases in the 2023 Gardner Critical Capabilities for Digital Commerce report. In the fourth quarter, we will recognize it as a leader in IDC's market scape, worldwide mid-market growth B2B digital commerce applications 2023-2024 vendor assessment. The text was also recognized by the Echo.

The third quarter, we were named a visionary in Gartner Magic quadrant for digital Commerce and became the only vendor ranking in the top five for all used cases into 2023 critical capabilities for digital Commerce reports in the fourth quarter, we will.

Recognize it as a leader in Idc's markets escape.

Worldwide mid market growth <unk> digital cordless applications 2023, 2024 vendor assessment.

The tax was also recognized by the ecosystem.

Geraldo Tomas Jr.: We were honored as the Global Industry Partner of the Year in Retail and Consumer Packaged Goods at the 2023 AWS Partners Awards and as the Best Interface Developer Portal at the DEVs Portal Awards in 2022. This underscores our commitment to reshaping commerce through innovation and collaboration. We are happy to share that 2024 started strong. In January, Vitex was the only vendor recognized as a customer choice in 2024, and got the voice of the customers for digital commerce. According to the report, 90-80% of Vitek's customers expressed a willingness to recommend the e-commerce platform to their peers.

Honored as the global industry partner of the year in retail and consumer packaged goods at the 2023 AWS Partners Awards and Thats. The best interface developer portal at the desk Portal Awards 2023. This underscore.

Our commitment to reshaping Congress through innovation and collaboration.

We are happy to share that 2024 started strong in January the tax was exclusive vendor recognized as the customer choice in 2020 for Gardner voice of the customers for digital commerce. According to the report 98% of <unk> customers.

Expressed the willingness to recommend the commerce platform to their peers.

Geraldo Tomas Jr.: This month, we will recognize it as the top leader in IDC market space's worldwide B2C digital commerce platform for mid-market growth vendor assessment study. Rated the highest out of 25 vendors, we stood out for our comprehensive solutions and strategic focus on B2C excellence. We are proud about all the recognitions we got through 2023, and it fuels our dedication to pioneering solutions that empower businesses for lasting success, continue our commitment to accelerating our ecosystem, and offering our customers the most comprehensive solutions. We're thrilled to announce that in the fourth quarter, we launched a strategic partnership with Dynamic Yield, a MasterCard company, and a leading pioneer in personalizing customer experiences. We're jointly developing a Vitek native innovative app that seems to integrate with dynamic youth's cutting-edge customer experience optimization platform.

This month, we were recognized as the top leader in IDC market space worldwide Beecher, Steve Digital Commerce platform for mid market growth vendor assessment study.

Rated the highest out of 25 vendors, we stood out for a comprehensive solutions and strategic focus on beaches excellence.

We are proud about all the recognitions, we got through 2023, and it's fused our dedication to pioneering solutions that empower business for lasting success.

Continuing our commitment to forestry.

System and offering our customers. The most comprehensive solutions, we're thrilled to announce that in the fourth quarter, we've launched a strategic partnership with dynamic yield a Mastercard company and the lead the entire year and personalized customer experiences.

We are jointly developing a detect native innovative app that seems to be integrate with dynamic yield <unk>.

Switching at customer experience optimization platform.

Geraldo Tomas Jr.: In an ever-evolving landscape, we seek to empower our customers to leverage dynamic AI-driven tools in order to optimize engagement, lifetime value, and revenue generation. Together, we aim to empower brands to easily build tailored experiences that resonate with each individual consumer, ultimately revolutionizing the standards of customer engagement and commerce. Before leaving the stage, Ricardo, I would like to share some customer success stories demonstrating our platform's tangible impact and potential. Our customers are in the spotlight at the core of our organization, and their success will always remain our focus. Electrolux, the leading brand in innovative home appliances, addresses the challenge of the absence of physical stores by developing a normal store with a digital experience at the 2023 Home Fair, a crucial event in the Colombian consumer calendar. These adaptable stores set up at specific events like the home fair, featured kiosks, and the sales team equipped with the VTech sub-accounts, offering customized catalogs and inventory for each occasion. Using the sales app, representatives seamlessly presented products and facilitated sales during their walk through the fair, while attendees also had the option to purchase through the self-service kiosk screen.

In the ever evolving landscape, which seeks to empower our customers to leverage dynamic yields AI driven tools in order to optimize engagement lifetime value and revenue generation.

Together, we aim to empower brands to easily tailor experiences that resonate with each individual consumer ultimately will follow soon.

Standards of course customers engagement and commerce success.

Before leaving the stage Chicago I would like to share some customer success cases, demonstrating our platform tangible impact and potential.

Customers are in the spotlight at the core of our organization and their success will always remain our focus.

<unk>, the leading brands innovative Rome appliances addresses the challenge of absence of physical stores by developing a non lids stores with a digital experience at the 2023 homes fear.

A crucial event in the Colombian consumer calendar.

These adaptable stores set up specific events like the home share feature kiosks in the sales team equipped with the detect sub account offering customized catalog and inventory for each location used.

Using the sales that represented to seamlessly presented products facilitated then sales during the walk through the fear while attendees also had the option to purchase through the self service kiosk screens.

Geraldo Tomas Jr.: The innovative approach resulted in a 73% sales increase compared to 2022, with the pickup point contributing 30% of total sales and a remarkable 84% growth in units. This success demonstrates Electrolux's ability to sell without physical stores, emphasizing the effectiveness of the digital strategy and the integration of sales apps for an enhanced customer experience. Motorola, the global telecommunication leader, faced a significant challenge with its multiple commerce platform, leading to high maintenance costs and impediments to launching new stores. By migrating to Vitex, Motorola benefited from the platform's adaptability, which was instrumental in streamlining operations and accelerating the establishment of new stores globally. Motorola was able to test third-party applications, optimize architectures by country, and reduce total cost of ownership.

The innovative approach resulted in a 72% sales increase compared to 23 Chu with typical points contributing 30% of total sales and a remarkable 84% growth in units.

This success demonstrates <unk> ability to sell without physical stores emphasizing the effectiveness of this digital strategy and the integration of sales that for an enhanced customer experience.

Motorola the global Telecommunications leader faced a significant challenge with its smooth <unk> commerce platform, leading to high maintenance costs and impediments to launching new stores by migrating to detect mozzarella benefitted from the platform that adaptability.

Which was instrumental in streamlining operations and accelerating the establishment of new stores globally.

Mozzarella was able to test third party application.

Optimized architectures by country, and reducing total cost of ownership.

Geraldo Tomas Jr.: As a consequence, Motorola experienced a remarkable 20% annual growth in the company's e-commerce. Jeffers Pet, the leading U.S. animal health and supply company, expanded its operation through Vitex, now managing one physical store and two websites. They launched the second website, Lumber Vet Supply, with over 4,000 SKUs. Leveraging text adaptability, they tailored the site for detailed path registration, seamlessly integrated with master data for a streamlined checkout process. Moreover, VTAC allowed customizations to support Lambert's subscription strategy, offering varying time spans from two weeks to six months alongside a tailored vaccine delivery approach enhancing the consumer experience. The unified web platform across multiple sites proves Benesco, reflected in Lambert's exceptional VAT exceptional results, a staggering 208% sales surge within three weeks of its launch. Flamingo, a retailer with over 40 stores across Colombia, partnered with ZTECH to expand their online payment platform. By integrating the widely used private label credit card, MESIA, Flamingo was able to reach a wider audience.

As a consequence, Motorola experienced a remarkable 20% annual growth in the company E Commerce businesses.

Jefferies Bache, the leading U S animal health and supply company expanded its operations through the tax now managing one physical stores into website.

The launch of the second website lumber that supply boosting over 4000 Skus.

Leveraging detects adaptability.

The site for the <unk> registration seamlessly integrated with master data for streamlined checkout process.

Moreover, the tax a lot of customization to support the Lambert subscription strategy.

Offering very time spent from two weeks to six months are low side, a tailored vaccine delivery approach enhancing the consumer experience the.

The unified web platform across multiple sites proves that Vanessa.

Reflected in leverage that's exceptional result results a staggering 208% sales surge within three weeks of its launch.

Flamingo, a retailer with over 40 stores across Colombia partnered with <unk> to expand the role of <unk> payment options by.

Integrating the widely used private label credit card Moesia Flamingo was was able to reach a wider audience through.

Geraldo Tomas Jr.: Through the Vitex platform, Mephia was seamlessly integrated as a native payment option, ensuring scalability and adaptability for Flamingo and all willing Vitex customers who want to use this payment method. For Flamingo, these native payment methods now represent more than 60% of digital sales, significantly improving its user experience, accelerating its sales, and solidifying its position in the digital market. The largest tool company in the world recognizes the immense potential of implementing a self-service platform in its B2B operations through VTech. The implementation allows them to expedite their user ordering experience across three major business units by eliminating cumbersome offline processes. The project generated time and effort savings in the ordering process, while at the same time reducing costs and increasing efficiency. By migrating to Vitex, they merged their traditional e-commerce site with the B2B site, creating a unified and connected commerce experience and providing a user-friendly B2C or D2C buying journey across both operations.

<unk> start to form my fear was seamlessly integrated as a native payment option, a shooting scalability and adaptability to fulfill.

All willing gtx customers, who wants to use this statement methods.

For Flamingo with this native payment methods now represents more than 66% of digital sales significantly improving its user experience accelerating its sales and solidifying its position in the digital markets.

The largest two company in the world recognizes the immense potential of implementing a self service platform will need speed should be operation through the tax the implementation that allows them to expedite its user auditing experienced across three major business units by <unk>.

Dominating combos sone offline processes.

The project generated time and effort safety in the ordering process, while at the same time, reducing costs and increasing efficiency.

By migrating to detect they merged their traditional e-commerce site with the beaches, besides creating a unified and connected commerce experience and providing a user friendly beaches C or D to C buying journey across both operations.

Geraldo Tomas Jr.: To conclude this session, I would like to express my gratitude to our 1,277 VITX employees dedicated to making VITX the backbone for connected commerce and to our customers, partners, and investors. I will now hand the call over to Ricardo to discuss our financial performance for the quarter. Thank you, Geraldo. Hi, everyone.

To conclude this section I would like to express my gratitude to our 12 177 detects employees dedicated to making <unk> the backbone for connected commerce and to our customers partners and investors I will now hand, the call over to Ricardo.

To discuss our financial performance for the quarter.

Thank you hi.

Hi, everyone. It's a pleasure to be here update Q1, our financial performance for the fourth quarter of 2023.

Ricardo Camatas-Adre: It's a pleasure to be here updating you on our financial performance for the fourth quarter of 2023. In the last quarter of the year, our GMV reached $5.4 billion, representing a year-over-year increase of 38% in U.S. dollars and 30% in FX neutral. With this, we concluded the full year 2023, reaching $16.5 billion in GMV, representing a growth of 30% and 25% in U.S. dollars and FX neutral, respectively. Our same source sales in 2023 reached 15% in FX neutral on top of 17% from 2022. Despite the slight same source sales slight decrease versus 2022, the upsell of new features to existing stores and contract inflation adjustment contributed to a net revenue retention increase to 107% in effect neutral in 2023, compared to 105% last year. Also, the contribution to GMV from new stores added throughout the year, especially for customers paying us more than $250,000 per year, and helped us achieve a solid GMV performance in the year.

In the last quarter of the year, our <unk> reach at $5 4 billion, representing a year over year increase of 38% U S dollars and 30% in FX neutral.

With this we concluded the full year 2023, reaching $16 5 billion and GMP, representing a growth of 30% and 25% U S dollars and FX neutral respectively.

Our same store sales in 2023, which had 15% FX neutral on top of 17% from 2022.

Despite the same store sales slides decrease versus 2000 to ensure the upsell of new features to existing stores and contract inflation adjustment contributed to our net revenue retention increased to 107% in FX neutral in 2023.

Compared to 105% last year.

Also the contribution to <unk> from new stores added throughout the year, especially for our customers paying us more than $250000 per year and helped us achieve a solid <unk> performance in the year.

Ricardo Camatas-Adre: Our revenue reached $60.7 million in the fourth quarter 2023, a year-over-year increase of 34% in U.S. dollars and 25% in FX neutral. This helped us achieve $201.5 million in revenue for the full year 2023, showing a 28% growth in U.S. dollars and 24% on an IFX neutral basis. Most of the overperformance versus guidance was driven by better than expected FX neutral performance during October and November, as well as the appreciation of the basket of Latin American currencies versus the U.S. dollar. Subscription revenue reached $58.2 million in the fourth quarter of 2023, from $42.7 million in the same quarter last year, a year-over-year increase of 36% in U.S. dollars and 27% in FX neutral. For the full year, subscription revenue reached $190.3 million, up from $148.5 million in 2022.

Our revenue reached $67 million in the fourth quarter 2023, a year over year increase of 34% U S dollars and 25% FX neutral.

This helped us achieve $201 $5 million revenue for the full year 2023, showing a 28% growth in U S dollars and 24% on FX neutral basis.

Most of the over performance versus guidance was driven by better than expected FX neutral performance during October and November as well as the appreciation of the basket of Latin America currencies versus the U S dollar.

Subscription revenue reached $58 $2 million in the fourth quarter of 2023 from $42 $7 million in the same quarter last year, a year over year increase of 36% in U S dollars and 27% in FX neutral.

For the full year subscription revenue reached $193 million.

Up from $148 $5 million in 2022.

Ricardo Camatas-Adre: Double-clicking on our 2023 subscription revenue, existing store's revenue increased to $146.0 million. Our net revenue retention reached 107% in effects neutral. As mentioned, despite a challenging retail market with slightly lower same-share sales versus 2022, our upsell efforts of the sales app, pick and pack, extensions hub, and the inflation adjustment of customer contracts resulted in an increase in our net revenue retention. On top of our existing store growth, we continue attracting new stores, adding $27.7 million in revenue to our base, representing approximately 20% of our 2022 BTEC platform revenue. This year's outcome indicates a stabilization to modest improvement in our sales cycle compared to the elongation observed in 2022. As anticipated, we saw a slight improvement in our sales efficiency compared to the previous year, a testament to the strategic high-efficiency measures implemented in mid-2022 and followed through 2023.

Double clicking on our 2023 subscription revenue existing stores revenue increased to 146 points here $1 million.

Our net revenue retention reached a 107% in FX neutral.

As mentioned, despite a challenging retail market and slightly lower same store sales versus 2022, our upsell efforts off sales at Beacon back extensions hub and the inflation adjustment of customer contracts resulted in an increase in our net revenue retention.

On top of our existing stores growth, we continue attracting new stores, adding $27 $7 million in revenue to our base, representing approximately 20% of our 2020 to be tax platform revenue.

This year's outcome indicate isomerization to modest improvement in our sales cycle compared to the inauguration observed in 2022.

As anticipated we saw a slight improvement in our sales efficiency compared to the previous year, a testament to the strategic high efficiency measures implemented in mid 2022 and followed through 2023.

Ricardo Camatas-Adre: Consequently, our LPV over CAC ratio continues to stand strong, exceeding the 6x mark. As mentioned by Geraldo, we continue expanding our geographical reach, with revenues outside of Brazil accounting for 46% of our total revenues. In 2023, Brazil, Latin America excluding Brazil, and the rest of the world grew 23%, 21%, and 37% on a year-over-year FX-neutral basis, respectively. Now, moving down our P&L, it's important to notice that all the figures I'll present are on a non-GAAP basis. You can find the reconciliation of those measures to the nearest comparable GAAP measures in our fourth quarter 2023 earnings press release, available on our investor relations website.

Consequently, our LTV over CAC ratio continues to stand strong exceeding the six X mark.

As mentioned by Sheldon, we continue expanding our geographical reach with revenues outside of Brazil, accounting for 46% of our total revenues.

In 2023, Brazil, Latin America, excluding Brazil, and the rest of the road grew 23%, 21% and 37% on a year over year FX neutral basis, respectively.

Now moving down our P&L, it's important to notice that all the figures are present are on a non-GAAP basis, you can find a reconciliation of those measures to the nearest comparable GAAP measures in our fourth quarter 2023 earnings press release available on our Investor Relations website.

In the fourth quarter of 2023, our subscription gross margin saw a significant increase reaching $45 $8 million, representing a margin of 78, 6% compared to 73, 5% in the same quarter of last year.

Ricardo Camatas-Adre: In the fourth quarter of 2023, our subscription gross margin saw a significant increase, reaching $45.8 million, representing a margin of 78.6% compared to 73.5% in the same quarter of last year. The 510 basis point margin expansion underscores our team's dedication to consistently find efficiencies in our code, providers, and other hosting aspects. Looking forward, we expect to deliver our last significant year-over-year subscription gross margin improvement. As a result, we have achieved a 74% gross margin, representing a year-over-year expansion of 562 basis points. This expansion on top of our subscription gross margin is further amplified by additional improvements in our services gross margin. In the fourth quarter of 2023, our total operating expenses decreased quarter over quarter to $33.4 million from $34.1 million, demonstrating the expense discipline we have maintained over the past two quarters.

The 510 basis point margin expansion underscores our team's dedication to consistently find efficiencies in our cold providers and other wholesale aspects looking.

Looking forward, we expect to deliver last significant year over year subscription gross margin improvements.

As a result, we have achieved a 74% gross margin representing a year over year expansion of 562 basis points.

These expansion on top of our subscription gross margin is towards the amplified by additional improvements in our services gross margin.

In the fourth quarter of 2023, our total operating expenses decreased quarter over quarter to $33 4 million from $34 1 million demonstrating the expenses discipline, we have maintained over the past two quarters.

About a year ago, we committed to achieving our sustainable breakeven point on the operating income and free cash flow basis by the fourth quarter 2023.

Surpassing our initial projections, we accomplish these milestones a quarter earlier than anticipated.

In the third quarter of 2002, and three we reached a positive three 4% operating margin in a positive free cash flow of $2 $7 million.

Ricardo Camatas-Adre: About a year ago, we committed to achieving our sustainable break-even point on an operating income and free cash flow basis by the fourth quarter of 2023. Surpassing our initial projections, we accomplished these milestones a quarter earlier than anticipated. In the third quarter of 2023, we reached a positive 3.4% operating margin and a positive free cash flow of $2.7 million. Now, in the fourth quarter of 2023, we achieved a notable 19% positive operating margin and a positive free cash flow of $9.5 million. Looking at the full year, we reached a positive 3.8% operating margin and a free cash flow of $3.8 million.

Now in fourth quarter 2023, we achieved a notable 19% positive operating margin in a positive free cash flow of $9 $5 million.

Looking at the full year, we reached a positive three 8% operating margin and our free cash flow of $3 8 million.

This demonstrates our dedication to sustainable growth positioning us ahead of our target financial milestones.

Our fourth quarter 2023 performance showcased the operational leverage inherent in our business model setting a solid foundation for future and supporting the target model, we shared at the Investor Day.

For instance, our subscription gross margin reached 79% slightly below the 80% target model and our overall gross margin is stood at a solid 74% closely in line with the 75% target model.

Expenses in SLM, R&D, and G&A were 23%, 20% and 11% respectively closely in line with the 20% to 25% for both us and MMO R&D and 10% for G&A from our target model.

Ricardo Camatas-Adre: This demonstrates our dedication to sustainable growth, positioning us ahead of our target financial milestones. Our fourth quarter 2023 performance showcased the operational leverage inherent in our business model, setting a solid foundation for the future and supporting the target model we shared at Investor Day. For instance, our subscription gross margin reached 79%, slightly below the 80% target model. And our overall gross margin stood at a solid 74%, closely in line with the 75% target model. Expenses on S&M, R&D, and G&A were 23%, 20%, and 11%, respectively, closely in line with the 20% to 25% for both S&M and R&D and 10% for G&A from our target model.

As a consequence, our EBITDA margin reached 19% also quite closer to 20% from the target model.

Moreover, given our 25% FX neutral revenue growth. This translated into a rule of 40 or 44%, which is over the 40% plus indication from the target model.

Now it's important to mention that our Q4 results are strongly supported by seasonality. Although this performance demonstrates our operational leverage and a clear path to sustainable growth. We are still a few years away from reaching our target model on a yearly basis.

Before moving to our Q1 and full year 2024 outlook I would like to remind the audience that from a business perspective.

Ricardo Camatas-Adre: As a consequence, our EBITDA margin reached 19%, also quite close to the 20% from the target model. Moreover, given our 25% FX-neutral revenue growth, this translated into a rule of 40 of 44%, which is over the 40% plus indication from the target model. Now, it's important to mention that our Q4 results are strongly supported by seasonality. Although this performance demonstrates our operational leverage and a clear path to sustainable growth, we are still a few years away from reaching our target model on a yearly basis. Before moving to our Q1 and full year 2024 outlook, I would like to remind the audience that, from a business perspective, we think about our P&L as a combination of two P&Ls, our existing store's P&L and our new store's P&L. You'll find this reference in slide 28 of our fourth quarter earnings presentation. VTAC's existing storage revenue, excluding our SMB platform, represented approximately 80% of our revenue, while our new storage revenue, also excluding our SMB platform, represented approximately 20%.

When you think about our P&L as a combination of two p&l's or existing stores P&L and our new stores P&L you'll.

You will find these referenced in slide 28 of our fourth quarter earnings presentation.

Defects existing stores revenue, excluding our SMB platform represented approximately 80% of our revenue.

While our new stores revenue.

Excluding our SMB platform represented approximately 20%.

Our existing customers gross margin, which at 77% this year, approximately 400 basis points higher than last year.

The gross margin profile of our new stores remained stable at 25%. Despite the pressure on services margins generated by the hyper care mode for specific global expansion customers.

The operating margin from existing stores increased from low Twenty's in 2022 to mid <unk> in 2023, while the operating margin losses from new stores improved by 74 percentage points.

2023, notably served as the initial clean year following organization restructuring and efficient growth Lane initiated in May 2022.

We believe it's fair to assume that while we anticipate ongoing margin expansion given our operational leverage we have already attained a normalized operational level for the demand that we are proceeding from the market.

Ricardo Camatas-Adre: Our existing customers' gross margin reached 77% this year, approximately 400 basis points higher than last year. The gross margin profile of our new source remained stable at 45% despite the pressure on services margins generated by the hypercare mode for specific global expansion customers. The operating margin from existing stores increased from the low 20s in 2022 to the mid-30s in 2023, while the operating margin losses from new stores improved by 74 percentage points. 2023 notably served as the initial clean year following our organization's restructuring and efficient growth plan initiated in May 2022. We believe it's fair to assume that while we anticipate ongoing margin expansion given our operational leverage, we have already attained a normalized operational level for the demand that we are perceiving from the market. As for the share repurchase program we approved in August of 2023, as of December 31, 2023, no remaining balance is available for share repurchase under this authorization.

On the share repurchase program, we approved in August of 2023 as of December 31, 2023, no remaining balance is available for share repurchase under this authorization.

We purchased one 9 million shares at an average price of $5 $41 per share.

<unk> repurchased since August of 2022 total shares repurchased reached $10 7 million with an average price of $4 $48 per share and a total cost of $48 million.

As we move forward with our business outlook. It is important to note that the macroeconomic conditions remain uncertain, even though we have witnessed a stabilization and slight improvement in our sales cycle.

Haven't yet returned back to its normal duration.

Despite these challenges, which mostly impacts our new stores time to revenue we remain confident in our ability to help our customers outperform the market and control our costs and expenses to deliver operational leverage.

Considering the macro conditions. We are currently targeting revenue in the $52 five to $53 $5 million range for the first quarter of 2024, implying a year over year growth of 22% on an FX neutral basis in the middle of the range.

Ricardo Camatas-Adre: We've purchased 1.9 million shares at an average price of $5.41 per share. Considering repurchase since August of 2022, total shares repurchased reached 10.7 million with an average price of $4.48 per share and a total cost of $48 million. As we move forward with our business outlook, it's important to note that macroeconomic conditions remain uncertain. Even though we have witnessed a stabilization and slight improvement in our sales cycle, they haven't yet returned to their normal duration. Despite these challenges, which mostly impact our new store's time-to-revenue, we remain confident in our ability to help our customers outperform the market and control our costs and expenses to deliver operational leverage. Considering the macro conditions, we are currently targeting revenue in the 52.5 to 53.5 million dollars range for the first quarter of 2024, implying a year-over-year growth of 22 percent on a FX-neutral basis in the middle of the range.

Also given the persistent macroeconomic uncertainty for the full year 2024, we are targeting FX neutral year over year revenue growth of 18% to 22%, implying a range of $234 million to $243 million based on January's average FX.

<unk>.

Free cash flow and non-GAAP operating income margins, reaching mid to high single digits.

With that let's open it up for questions now thank you.

Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

We will go first to Leonardo Olmos at UBS.

Hi, good evening, everyone. Congrats on the results one for Glenn.

My question is around the <unk> date.

The employee.

Requirement the company may have versus growth so.

I wanted to know is that.

Guidance of mid to high single digits operating margin.

Does it imply.

Is it all going to need.

Correlated to lower growth expectations, while deceleration its location on an FX neutral basis <unk> four right.

Then my question what happened with <unk>.

Laser additional grow through well as you grow in 'twenty three.

<unk> operating margin would be lower.

Yes.

Ricardo Camatas-Adre: Also, given the persistent macroeconomic uncertainty for the full year 2024, we are targeting an FX-neutral year-over-year revenue growth of 18% to 22%, implying a range of $234 to $243 million based on January's average FX rate, with free cash flow and non-gap operating income margins reaching mid to high single digits. With that, let's open it up for questions now. Thank you. Thank you. At this time, I would like to remind everyone, in order to ask a question, press the star, then the number one on the telephone keypad. We'll go first to Leonardo Olmos at UBS.

High level. He got here. Thanks for the question Great question important for us to be aligned so talking about the overall expenses and then we can think about the guidance and what is our mental model on this topic. So as you can see from our Q4 results we continue to be disciplined.

On our expenses.

Right you can see that the expenses were roughly flattish quarter over quarter.

Slight decrease.

Now looking forward. This quarter. We are also providing guidance on our free cash flow and non-GAAP operating income margins for 2024.

And our guidance suggests achieving mid to high single digit operating income margin as you mention.

Leonardo Olmos: Hi, good evening, everyone. Congratulations on the results once again. So my question is around the employee requirements the company may have versus growth. So, in the end, all I wanted to know was that if the guidance of needing high single digits of operating margin is obviously correlated to your lower growth expectations? Your deceleration expectation on an FX-neutral base for 24, right?

So considering our growth outlook and anticipating more limited gross margin improvements.

We'll remain disciplined on our expenses profile for 2024.

You should expect some incremental expenses given inflation promotions in a potentially small head count increase.

And we are confident in our level of investments in sales and marketing to meet the market demand and our robust G. In 18, and we plan to make some hires in research and development targeting the opportunities outlined in the founders' letter in our annual report.

Ricardo Camatas-Adre: Then my question is, what happens if you accelerate, if you deliver additional growth as you grow in 23? Do you think your operating margin would be lower? Thank you. Hi, Leo Ricciardo here.

Now any expenses increase should be significantly below our revenue growth.

Having said that it's important for us to maintain flexibility in adapting the company as needed in response to demand. So this goes to your question like how we we will adapt the company given different growth rates.

Ricardo Camatas-Adre: Thanks for the question. Great question; important for us to be aligned. So, talking about the overall expenses, and then we can, you know, think about the guidance and what our mental model is on this topic. So, as you can see from our Q4 results, we continue to be disciplined on our expenses. Right, you can see that the expenses were roughly flattish quarter over quarter, a slight decrease. Now, looking forward, this quarter, we are also providing guidance on our free cash flow and non-gap operating income And our guidance suggests achieving a mid to high single-digit operating income margin, as you mentioned. So, considering our growth outlook and anticipating more limited gross margin improvements, we will remain disciplined on our expenses profile for 2024.

If we look further out it is important to emphasize that the tax mindset is aligned with the rule of 40. These means that in a hypothetical case, we see a higher revenue growth opportunity, we may adjust our investments accordingly to capture this opportunity or if we see a lower revenue growth scenario, where we were.

Just our expenses to improve profitability, so hopefully that answered the question well.

Cash and short of breath Crystal clear so.

I'm not guiding but just an interpretation why they said if you'll have grow slightly above what you had were probably going to see operating leverage, but if you have a superb growth.

They see some additional investments.

That will be a proper interpretation.

Yeah, No I think as I said in my answer did is maybe looking further out for other use I think for the 2024, we have our budget and our guidance right. So I think it's a little bit last what we will adjust within the year because you started the year already contracted and some things, but as the <unk>.

Ricardo Camatas-Adre: You should expect some incremental expenses, given inflation, promotions, and a potential small headcount increase. And we are confident in our level of investments in sales and marketing to meet market demand and our robust G&A team. And we plan to make some hires in research and development, targeting the opportunities outlined in the founder's letter in our annual report. Now, any expenses increased should be significantly below our revenue growth.

Modeling as you think about the mindset. This is how we would think about it going further out.

Okay. This is helpful. A quick follow up another question.

My phone sorry about that.

With the share repurchase program that is dead.

Do you see what opportunity existing capsule locations ECM more replicate is or are there other things. Thank you.

Ricardo Camatas-Adre: Having said that, it's important for us to maintain flexibility in adapting the company as needed in response to demand. So this goes to your question, like how would we adapt the company given different growth rates. If we look further out, it's important to emphasize that DTAC's mindset is aligned with the rule of 40.

Yeah, Hello happy to take this one as well so as we as we mentioned in the prepared remarks, we already consume 100% of the 2023 buyback program. So we no longer have an active plan in place right now and as a high growth company, we always seek opportunities to invest.

Ricardo Camatas-Adre: This means that in a hypothetical case, where we see a higher revenue growth opportunity, we may adjust our investments accordingly to capture this opportunity. Or if we see a lower revenue growth scenario, we will adjust our expenses to improve profitability. So hopefully, that answered the question. Yes, crystal clear.

Our resources and drive growth with our robust cash position and a clear understanding of these years capital allocation, we will always seek to balance our organic growth plans M&A opportunities and buybacks in the best interest of the long term oriented shareholders. So all.

Leonardo Olmos: So not guiding, but just an interpretation of what he said. If you have growth slightly above what you have, we're probably going to see operating average growth. But if you have superb growth, we may see some additional investments. That would be a proper interpretation.

I'd say probably in this order.

But.

That's the mindset.

Understood. Thank you very much have a good evening.

Okay.

We'll go next to Luca random at Bank of America.

Mr. Brendan Your line is now have you may be muted.

Hello, Kevin.

Can you hear me.

Yes, I can.

Ricardo Camatas-Adre: Yeah, no, I think, as I said in my answer, this is maybe looking further out for other years. I think for 2024, we have our budget and our guidance, right? So I think it's a little bit less what we will adjust within the year because you start the year already contracted for some things. But as a mental model and as you think about the mindset, this is how we would think about it going further out. Okay, this is helpful. A quick follow-up, another question in my last one. Sorry about that.

Okay perfect. Thank you actually this is Fred here.

Thanks for the call I have two questions here. The first is if you can just give us an idea about what type of environment.

It is included.

In the guidance given the strong <unk>.

<unk> results.

The guide looks at first a little cost servers. So just kind of the environment that you are seeing for debt. This will be my first question and then my second question.

For the year of 2023.

Assuming that there was basically no growth in the ecommerce segment.

Grew a lot it looks like you're getting a lot of market share, especially in Brazil.

Ricardo Camatas-Adre: With the shared record change program that you did, what opportunities do you see in capsule locations this year? More shared record changes or other things? Thank you. Yeah, hello. Happy to take this one as well.

So just trying to understand if you can comment a little bit of a definitely environment is actually use you saw yourself, we're gaining a lot of market share.

Where are you gaining any waste any any color you could give on that youre looking at would be great. Thank you very much.

Yeah, Hi, Hi, Brian Thanks for the question to give us the opportunity to explain a little bit how we're thinking about the guidance for 2024. So we are starting these year in a more favorable position than we started 2023. So just to we rewind the tape a little bit we started 2020.

Ricardo Camatas-Adre: As we mentioned in the prepared remarks, we have already consumed 100% of the 2023 BIPAC program, so we no longer have an active plan in place right now. And as a high-growth company, we always seek opportunities to invest our resources and drive growth. With our robust cash position and a clear understanding of this year's capital allocation, we will always seek to balance our organic growth plans, M&A opportunities, and buybacks in the best interest of long-term oriented shareholders. So I would say probably in this order, but you know, that's the mindset. Thank you very much. Have a good evening. We'll go next to Luca Brendam at the Bank of America. Mr. Brandon, your line is open. You may be muted.

Three with our guidance of 15% to 19% FX neutral revenue growth.

We're now starting this year with 18% to 22%.

And as the range shows there is a still a relevant level of uncertainty in the market.

Top down we see that uncertainty expressed by the 30% to 40% recession probability currently priced by the market and bottom up we see that expressed by our customers GMB volatility.

Luca Brendam: Hello, can you hear me? Yes, we can. Okay, perfect. Thank you. Thank you. Actually, this is Fred here.

And going into the assumptions, that's basing our guidance.

Fred: Thanks for the call. I have two questions here. The first is, if you can just give us an idea about what type of environment, you know, is included in the guidance. Given the strong FARFQ results, the guide looks at first a little conservative. So just kind of the environment that you are seeing for that.

From the perspective of existing customers, we are assuming that our same store sales and net revenue retention will remain around the current levels.

And looking at new customers, we are assuming that the sales cycle, including implementation and ramp up times. We've also remained relatively stable versus what we saw over the second half of 2023.

Fred: And then my second question, for the year of 2023, assuming that there was basically no growth in the e-commerce segment, and if you grew a lot, it looks like you gain a lot of market share, especially in Brazil. So just trying to understand if you can comment a little bit on that environment, if you actually see yourself gaining a lot of market share, where you're gaining, anyways, any color you could give on that would be great. Thank you very much. Yeah, hi Fred.

And then on margins, we will continue to control our costs and expenses and therefore, our operating leverage should lead our non-GAAP operating.

Income and free cash flow margins to reach mutual high single digits.

Finally, we always talk about our guidance in FX neutral and we mentioned the imply U S. Dollar revenue based on certain FX assumptions. So on this part for 2024, we are assuming the January average FX for the full year, which is also aligned with the year end FX consensus.

Ricardo Camatas-Adre: Thanks for the question to give us the opportunity to explain a little bit how we're thinking about the guidance for 2024. So we are starting this year in a more favorable position than we started in 2023. So just to rewind the tape a little bit, we started 2023 with guidance of 15 to 19 percent FX-neutral revenue growth, and we are now starting this year with 18 to 22 percent. And as the range shows, there is still a relevant level of uncertainty in the market. Top-down, we see that uncertainty expressed by the 30 to 40 percent recession probability currently priced by the market.

Yes.

In the case of Argentina as already mentioned in our Q3 earnings Q&A session.

50% plus devaluation of last December should result in a mid single digit percentage point headwind in our 2024 U S dollar growth and a more moderate impact in FX neutral as economic economic activity in retail may get impacted by the macroeconomic adjustment.

Of the country.

And it's also important information that the devaluation in Argentina should have a low to mid single digit operating margin impact for the tax in 2024.

Which was already accounted for in our 2020 for margin guidance.

Ricardo Camatas-Adre: And bottom-up, we see that expressed by our customers' GMB volatility. And going into the assumptions that are based on our guidance, from the perspective of existing customers, we are assuming that our same-store sales and net revenue retention will remain around the current levels. And looking at new customers, we are assuming that the sales cycle, including implementation and ramp-up times, will also remain relatively stable versus what we saw in the second half of 2023. And then on margins, we will continue to control our costs and expenses, and therefore, our operating leverage should lead our non-gap operating income and free cash flow margins to reach mid to high single digits. Finally, we always talk about our guidance in FX neutral, and we mentioned the implied U.S. dollar revenue based on certain FX assumptions. So on this part, for 2024, we are assuming the January average FX for the full year, which is also aligned with the year-end FX consensus.

Having said that although we have some G. M. D volatility we are happy with how we are starting the year and we consider our guidance well balanced given the macro uncertainty that we see in the market.

And then I think question one was our overall performance.

Jim decide versus the market. So I'll pass this over to Harold.

Thank you thank you Ricardo.

Well. Thank you for this question.

And in fact, Youre right like the the global Commerce grill, According to market tier of around 9% in globally and 14% in Latin America last year.

And this is one off.

One statistic statistical.

Statistics, especially for Brazil, they say that.

Eventually ecommerce was flattish or even negative in Brazil for some statistics.

And we consistently consistently outpace the market our GMB growth for the whole company was 25% FX neutral, 30% U S dollars.

Even bigger growth in Q4 of last year, 38% and Jim view growth for U S dollars and 30% in FX neutral.

Ricardo Camatas-Adre: In the case of Argentina, as already mentioned in our Q3 earnings Q&A session, the 50% plus devaluation of last December should result in a mid-single-digit percentage point headwind on our 2024 U.S. dollar growth and a more moderate impact on FX neutral, as economic activity and retail may get impacted by the macroeconomic adjustment of the country. And it's also important to mention that the devaluation in Argentina should have a low to mid-single-digit operating margin impact on VTX in 2024, which was already accounted for in our 2024 Margin Guidance. Having said that, although there is some GMB volatility, we are happy with how we are starting the year, and we consider our guidance well balanced given the macro uncertainty that we see in the market. And then I think question one was our, you know, overall performance on the GMB side versus the market. So I'll pass this over to Geraldo.

This growth is caused by new customers.

Add that.

In revenue a $28 million with new customers last year, which is notable we grew the customer logo, but our our current customer.

This seems to be we always noticed that and last year was not different.

Our customers are resilient customer through crisis.

Our same store sales reached 19% in USD and 15%.

Growth in FX neutral.

And I think Ah ha.

Healthy same store sales performance can be attributed to the seamless integration of physical stores into the digital commerce experience I think we did a lot of this last year the lowest.

Relevant customers that when those started to deliver from store and use the store for the digital commerce experience.

Th, resulting higher conversion rate expanded inventories fueling inventories breakages faster delivery among others.

<unk>.

I think in summary, our value proposition resonates here, we're empowering customers to achieve sustainable.

Profitable growth by reducing the total cost of ownership and simplifying their ecommerce architecture.

Geraldo Tomas Jr.: Thank you, Ricardo. Thank you for this question. In fact, you're right.

This aligns seamlessly with the evolving demands of the market, enabling them to design a strategy that outperformed the market I think.

Geraldo Tomas Jr.: Global e-commerce grew, according to Marketeer, around 9% globally and 14% in Latin America last year. And this is just one statistic. There are other statistics, especially for Brazil. They say that, eventually, e-commerce was flattish or even negative in Brazil for some statistics. And we consistently outpaced the market. Our GMV growth for the whole company was 25% FX Neutron, 30% USD dollars, and even bigger growth in Q4 of last year, 38% in GMV growth for US dollars, and 30% in FX Neutron. This growth is caused by new customers. We added $28 million in revenue with new customers last year, which is notable. We grew the customer's logo.

You saw right and again, we were able our customers were able to outperform the market.

Perfect Super clear. Thank you. Thank you Ricardo.

Okay.

We will move to our next question from Marcelo Santos Jpmorgan.

Hi, good evening, Thanks for taking my questions I had two the first I just wanted to go again to the guidance sorry about that.

I wanted to understand a bit better the existing customers will have same store sale net revenue retention kind of around current levels and the sales cycle remains stable.

Can you kind of have similar growth than you have.

23, just just wanted to understand one Louisiana.

I'm missing here, but it seems youre keeping stable the same assumption so why isn't the growth of the same and the second question is more conceptual.

The new stores, increasing here 100 right versus versus last year.

And in the past few years to increase much more.

Is it because you are adding larger and larger stores I mean, how are you keeping growth, but adding fewer.

Stores.

What the changing profile and how should this move forward. Thank you.

Geraldo Tomas Jr.: But our current customers, we always noticed that, and last year was not different. Our customers are resilient customers through crises. Our same-store sales reached 19% USD and 15% growth in FX Neutron. I think our healthy same-store sales performance can be attributed to the seamless integration of physical stores into the digital commerce experience. I think we did a lot of this last year.

Hi, Marcello.

For both questions.

I'll start here and then others feel free to chime in so on on the guidance right as I mentioned.

The same store sales, we're assuming <unk>.

Relatively same level.

And the new stores. We are assuming also that will continue in a similar sales cycle now you'll have to rewind the tape drifting about the effects on the growth.

Because we saw in litigation of the sales cycle in 2022 that pushed some revenue further out and then in 2023, we saw the sales cycles stabilizing getting slightly better that.

Geraldo Tomas Jr.: Relevant customers that started to deliver from the store and use the store for the digital commerce experience. This resulted in higher conversion rates, expanded inventories, fewer inventories, breakages, faster deliveries, among other advantages. So, in summary, our value proposition resonates here. We're empowering customers to achieve sustainable, profitable growth by reducing their total cost of ownership and simplifying their e-commerce architecture. This aligns seamlessly with the evolving demands of the market, enabling them to design a strategy that outperforms the market. I think you got it right.

Some revenue forward right. So we don't have that pull forward effect in 2024 that we saw in 2023, and maybe explaining a bit more.

On the overall, what we're seeing here is that.

As we mentioned, we see a good level of uncertainty in the market, which has expressed to us by our customers GMT volatility and looking at Q4, we saw stronger months and lastly, strong months and we continue to see that volatility going into 2024.

And despite starting the year in a better position.

Fred: And again, we were able, our customers were able to outperform the market. Perfect. Super clear.

Dan the previous one our ability to predict short term outcomes is more reliable than making predictions for the entire year.

Geraldo Tomas Jr.: Thank you, Geraldo. Thank you, Ricardo. We'll move to our next question from Marcella Santos at JPMorgan. Hi, good evening.

Nevertheless, we maintain optimism about our capability to surpass market growth and achieve our profitability targets and we reinforced our commitment to excellence in execution, regardless of the external circumstances, we are gaining market share managing costs and expenses and expanding internationally by staying focused on the <unk>.

Marcella Santos: Thanks for taking my questions. First, I just wanted to go again to the guidance. Sorry about that.

Marcella Santos: Wanted to understand a bit better, if the existing customers will have same-store sales and net revenue retention kind of around current levels and the sales cycle remains stable, shouldn't you kind of have similar growth than you had in 2023? Just wanted to understand why I'm losing it, what I'm missing here, but it seems you're keeping the same assumption. So why isn't the growth the same? And the second question is more conceptual. The number of new stores increased this year by 100, right? Versus last year.

<unk> outstanding results, we can emerge from this macro uncertainty as a stronger and more resilient company. So hopefully these answers the first question.

On the second question on number of customers.

Although the number of customers has stayed relatively flat this year versus last year to 6000 customers. Our number of stores increased by 4% to three 5000 stores and most importantly, the number of customers that pay us more than 250.

Ricardo Camatas-Adre: And in the past, you used to increase much more. Is it because you're adding larger and larger stores? I mean, how are you maintaining growth but adding fewer stores? What's the changing profile, and how should this move forward? Hi, Marcelo.

$1 per year increased by 34% to 126 customers.

Ricardo Camatas-Adre: Thanks for both questions. I'll start here, and then others feel free to chime in. So on the guidance, as I mentioned, the same-store sales, we are assuming to be at a relatively same level. And the new stores, we are also assuming that they will continue in a similar sales cycle. Now, you have to rewind the tape to think about the effects on growth, because we saw an elongation of the sales cycle in 2022 that pushed some revenue further out. And then in 2023, we saw the sales cycle stabilizing, getting slightly better, and pulling some revenue forward, right? So we don't have that pull-forward effect in 2024 that we saw in 2023.

These larger customers with more than $250000 and revenue loss per year are the ones that move the needle.

They are the customers that are receiving most of our commercial efforts in each one in 'twenty three day represented roughly half of our subscription revenue and this customer group was responsible for roughly two thirds of our subscription revenue growth.

It's also important to note that more than one third of the increase in this customer group group counts.

Came from net new customers and it's also nice to see a meaningful number of customers growing end up hearing should now join these groups.

Ricardo Camatas-Adre: And maybe, you know, explain a bit more on the overall what we're seeing here. As we mentioned, we see a good level of uncertainty in the market, which is expressed to us by our customers' GMV volatility. Looking at Q4, we saw stronger months and less strong months, and we continue to see that volatility going into 2024. And despite starting the year in a better position than the previous one, our ability to predict short-term outcomes is more reliable than making predictions for the entire year. Nevertheless, we maintain optimism about our capability to surpass market growth and achieve our profitability targets, and we reinforce our commitment to excellence in execution, regardless of external circumstances.

And finally, although we have some volatility from the from year to year, we continue to see our annual revenue churn in the mid single digit percentages and attractive rate for our E Commerce <unk>.

Enterprise software as a service solution.

Of course, it's very comprehensive thank you.

Okay.

We will go to our next question from Clarke Jeffries at Piper Sandler.

Yeah.

Hello, Thank you for taking the question.

Two for Ricardo.

To see that the operating margin from the existing storefronts I think thats a pretty impressive number.

In terms of expansion year over year.

<unk> talked before about.

Our longer term ambition of being a rule of 40 company I would expect that that that existing.

Store margin would continue to trend higher but any way to think about the shape of the curve for further improvement from here I mean, what it may not be right to assume that it will be as pronounced in.

Ricardo Camatas-Adre: We are gaining market share, managing costs and expenses, and expanding internationally. By staying focused on delivering outstanding results, we can emerge from this macro uncertainty as a stronger and more resilient company. So hopefully, this answers the first question.

In 2024 in terms of the margin improvement, but will be steadily moving to an accretive margin to the corporate.

Number from existing stores.

And then one follow up.

Yeah, Hi, Clark.

Ricardo Camatas-Adre: On the second question about number of customers, although the number of customers stayed relatively flat this year versus last year at 2,600 customers, our number of stores increased by 4% to 3,500 stores. And most importantly, the number of customers that pay us more than $250,000 per year increased by 34% to 126 customers. These larger customers with more than $250,000 in revenue per year are the ones that move the needle. They are the customers that receive most of our commercial efforts, and in 2023, they represented roughly half of our subscription revenue, and this customer group was responsible for roughly two-thirds of our subscription revenue growth. It's also important to note that more than one-third of the increase in this customer group count came from net new customers, and it's also nice to see a meaningful number of customers growing and staying to now join this group. And finally, although with some volatility from year to year, we continue to see our annual revenue churn in the mid-single-digit percentages, an attractive rate for an e-commerce enterprise software-as- It's very comprehensive.

Great Great question on the existing store margin, we update this every year right. So you can see that in 2023, we reach at roughly 35% operating income margin for the existing stores coming from low twenties E 2022, So a meaningful improvement there and then use to think about that.

<unk> and the rule of 40 of that P&L right did net revenue retention.

It's the growth of that P&L right and it was 107, 7% growth. So on a rule of 40 basis. The existing stores. It was like 42 right for for the year. So it's nice to see that now as I said in the prepared remarks.

We adjusted the company for the level of the demand that we're seeing also fall.

The the projects that we're working on in the G&A expenses. So we see this company as well adjusted on the existing store site.

So improvements from here, it's more on the operational level.

Operational leverage type of movement than any significant move in movement that we saw no year over year from 2022 to 2023, so so nothing as meaningful.

That we are indicating for for now on these but it's nice to see these at a good level as it shows the potential for the the company down the road right.

Marcella Santos: Thank you. We'll go to our next question from Clark Jeffries at Piper Sam. Hello, thank you for taking the question. Two, for Ricardo, you know, it's great to see the operating margin from the existing storefronts. I think that's a pretty impressive number in terms of expansion year over year. You know, I think we've talked before about, you know, a longer term ambition of being a rural afforded company. I would expect that the existing store margin would continue to trend higher. But any way to think about the shape of the curve for further improvement from here? I mean, it may not be right to assume that it will be as pronounced in 2024 in terms of the margin improvement, but we'll be steadily moving to an accretive margin to the corporate number from existing stores. And then one follow up. Yeah, hi Clark.

Hopefully that answers your question.

Yeah, Yeah that makes that makes a lot of sense.

Just in terms of the composition of growth.

This year it seems like you were able to.

Have above 20% FX neutral growth in all of Latam accretive to that and rest of world.

In the coming year would you say, it's fair to say that.

You would have expected 2020% plus.

FX neutral growth in the coming year and Latam if it wasn't for the devaluation.

Currency effects.

Or any way to think about the sort of sustainable growth threshold for <unk>.

Latam.

<unk>, 90% mix of the business. Thank you.

Yes.

Hey.

In Latin America.

Clark Jeffries: Great, great question on the existing store margin. We update these every year, right? So you can see that in 2023, we reached roughly 35% operating income margin for the existing stores, coming from the low 20s in 2022. So meaningful improvement there.

<unk> continues to be a region with incredible potential for vertex.

Why are we are we hold a leadership position in the region is still different from the stronghold we have in Brazil.

Furthermore, we still see opportunity to advance the ecosystem maturity towards the level, we currency in Brazil to the entire region of Latam.

We remain committed to executing our nurturing strategy and reinforcing our regional ecosystem in the whole region, so countries as Mexico.

Ricardo Camatas-Adre: And then if you think about that P&L and the Rule of 40 of that P&L, right? The net revenue rotation is the growth of that P&L, right? And it was 107, so 7% growth. So on a Rule of 40 basis, the existing stores, it was like 42, right? For the year.

Or in a less advanced stage comparing to Brazil, comparing to Colombia as it was one of the last markets. We entered Latin America. So we see great opportunity to enhance our network in Mexico.

Ricardo Camatas-Adre: So it's nice to see that. Now, as I said in the prepared remarks, we adjusted the company for the level of the demand that we are seeing and also for the project that we are working on and the G&A expenses. So we see this company as well-adjusted on the existing store side. So, improvements from here. It's more on the operational level, operational leverage type of movement than any significant movement that we saw over a year from 2022 to 2023. So nothing as meaningful as what we are indicating for now on this. But it's nice to see this at a good level as it shows the potential for the company down the road, right? Hopefully, that answers the question.

However, it is experiencing healthy growth.

We are excited about the opportunity it represents for vertex.

Mainly volatility volatility in Latam as well. So we are cautiously optimistic with the Latin expansion, we see great opportunity it seemed to be great opportunities in the penetration of e-commerce, but we need to be cautiously optimistic about it.

We already have notable success stories in Mexico for example, like Russia, Raleigh, Nashville, and we persist to acquiring more heft for instance cases.

As we speak.

As you can see our results in 2023, Brazilian Latam grew in a similar basis, so brasilia supported by strong ecosystem and high win rates.

Supported by large opportunity with <unk>.

Big market shares due to be developed so the foundations if I can summary, my answer the foundations for growth in Latam will come from the e-commerce penetration and our positioning as the leader in the region and also the beat to be demand that is increasing consistently in the region creating.

Ricardo Camatas-Adre: Yeah, that makes a lot of sense. And then, just in terms of the composition of growth. You know, this year it seems like you were able to... have above 20% FX neutral growth in all of LATAM, accretive to that in the rest of the world. You know, in the coming year, would you say it's fair to say that you would have expected 20, 20% plus? FX neutral growth in the coming year in LATAM if it wasn't for the devaluation currency effect or any way to think about the sort of sustainable growth threshold for LATAM as a 90% mix of the business. Okay, so Latin America continues to be a region with incredible potential for development. While we hold a leadership position in the region, it is still different from the stronghold we have in Brazil.

Growth opportunity as well it is also increasing in our U S and Europe. So b to B is summing up on the foundations for the future growth.

Perfect. Thank you very much.

And we'll move next to Maddie schrage at Keybanc capital markets.

Yes.

Hey, guys and thanks for taking my question.

First one is we saw a healthy step up in <unk> this year.

Just wondering if you have kind of like a long term.

Sustainable NR rate that may be targeted and then my second question is on the pricing environment wondering if you've seen any changes in pricing in Latam that also as youre entering the U S market, we saw shopify take up pricing and just wondering if that.

That might create some opportunities for you guys as well.

Geraldo Tomas Jr.: Furthermore, we still see an opportunity to advance the ecosystem maturity towards the level we currently see in Brazil across the entire region of LATAM. We remain committed to executing our nurturing strategy and reinforcing our regional ecosystem across the whole region. Countries like Mexico are in a less advanced stage, compared to Brazil, and compared to Colombia, as it was one of the last markets we entered in Latin America.

Yes, Hi, Hi, Mary Thanks for the question I can start with the first one on the net revenue retention and then I'll pass it over to Mariano.

One on pricing so the mental model our net revenue retention is basically going.

Going back to our revenue model roughly one third of our revenue comes from a big city and two thirds from a take rate. So roughly two thirds of our same store sales growth turns into revenue growth for us and then if you take out the churn you kind of get should the net revenue.

Geraldo Tomas Jr.: So we see a great opportunity to enhance our network in Mexico. However, it is experiencing healthy growth, as we are excited about the opportunity it represents for Vitex. There is a lot of volatility in LATAM as well.

Retention.

Now if you do these math with the 2023 numbers you get to is slightly below.

Geraldo Tomas Jr.: So we are cautiously optimistic about the LATAM expansion. We see great opportunities in B2B, great opportunities in the penetration of e-commerce, but we need to be cautiously optimistic about it. We already have notable success stories in Mexico, for example, Electra, Chedraui, NADRO, and we are still acquiring more reference cases as we speak. As you can see, our results in 2023, Brazil, and Latam grew on a similar basis. So Brazil is supported by a strong ecosystem and high wind rates, and Latam is supported by a large opportunity with big market shares due to be developed.

To the net revenue retention that we had for the year and that's because as I mentioned in prepared remarks, we had the inflation adjustment on our fix its fee.

A portion of the revenue and two and most importantly, we up sold some of our existing customers with our sales at Beacon back extensions hub.

Integrating the physical stores E Chu the tax platform and so on so they can do this.

From the store.

And that helped us slightly on our net revenue retention.

Geraldo Tomas Jr.: So the foundations, if I can sum up my answer, the foundations for growth in Latam will come from the e-commerce penetration and our positioning as the leader in the region, and also the B2B demand that is increasing consistently in the region, creating a growth opportunity. As well, it is also increasing in the US and Europe. So B2B is summing up on the foundations for future growth. Perfect, thank you very much.

Performance now thinking further out.

It depends on the overall e-commerce growth and our potential over performance versus the overall market growth as historically, we have over performed as jet automation, but it's hard for us to pinpoint a specific number here given that it depends on on how this will evolve.

Maddie Schrave: And we'll move next to Maddie Schrave at KeyBank Capital Markets. Hey guys, and thanks for taking my question. My first one is, you know, we saw a healthy step up in NRR this year. Just wondering if you have kind of like a long-term view. I have a question on the pricing environment, wondering if you've seen any changes in pricing in LATAM, but also, you know, if you're entering the U.S. market, we saw Shopify take up pricing, and just wondering if that might create some opportunity for you guys as well. Yeah, hi. Hi Mehdi.

Going forward now.

Now if we look historically.

We have the at 115 for the past two years and then last year 107 pre pandemic. This was more in the 110 type of range as ecommerce was still in the initial phases of penetration.

Now, we still see a good potential of growth independence ration of ecommerce sees Latin America is roughly in the 10 to 11, 12% penetration depending on the source and then the U S is 18% to 20% depending on the source. So we still see a good level off.

Ricardo Camatas-Adre: Thanks for the question. I can start with the first one on net revenue retention, and then I'll pass it over to Mariano on pricing. So the mental model for our net revenue retention is basically, going back to our revenue model, roughly one third of our revenue comes from a fixed fee and two thirds from a take rate. So roughly two thirds of our same store sales growth turns into revenue growth for us. And then if you take out the churn, you kind of get to the net revenue retention. Now, if you do this math with the 2023 numbers, you get slightly below the net revenue retention that we had for the year. And that's because, as I mentioned in my prepared remarks, we had an inflation adjustment on our fixed fee portion of the revenue. And two, and most importantly, we upsold some of our existing customers on the sales app, pick and pack, extensions hub, integrating the physical stores into the Vitex platform, and so on. So they can do the fulfillment from the store.

Potentially incremental penetration should happen and ecommerce growth once the macro uncertainty stabilizes. So so I think thats. It on the net revenue retention and then on pricing your pursuit of which you might be on them.

I can take the court can take Erika. This is gerardo speaking thank you for the question.

Let me I'll do a quick a quick recap about our pricing strategy.

We are here to have long term relationship with their customers.

We weren't predictable pricing to our customers to do a business model on top of our pricing in and them to be healthy.

Using us with low total cost of ownership and this is the <unk>.

Having a price that is the take rate I think this is very fair and we model described can so that the customer pays less take rate as they grow.

This does is this is a pricing strategies that we used since 2012 very stable price.

Ricardo Camatas-Adre: And that helped slightly with our net revenue retention performance. Now, thinking further out, it depends on, you know, the overall e-commerce growth and our potential overperformance versus the overall market growth, as we have historically overperformed, as Geraldo mentioned. But it's hard for us to pinpoint a specific number here, given that it depends on how this will evolve going forward. Now, if we look historically, we have been at 105 for the past two years and then last year at 107. Pre-pandemic, this was more in the 110 type of range as e-commerce was still in the initial phases of penetration. Now, we still see a good potential for growth in the penetration of e-commerce since Latin America is roughly in the 10, 11, or 12 percent range, depending on the source. And then the U.S. is 18 to 20 percent, depending on the source.

More ecosystem knows about the price already.

<unk>.

People Trust us because of the stretch the structure and the stability of our pricing so our pricing general and now pricing gender like every all the e-commerce part of our kind of the.

Same across the globe.

Cause other partner firms also charged almost say we charge, mostly the same as well.

You mentioned that shopify is charging more.

For the U S customers.

I would say.

We saw that we saw this happening are shopping five deals with the different type of customers than we did than we do.

We deal with more enterprise customers to shopify, changing spicing, it doesn't affect our positioning and competitiveness.

That much.

Actually if they increase their pricing.

US some room to eventually in the low double feature increased hours as well, but we do believe that as stability in the price is important for us.

Ricardo Camatas-Adre: So we still see a good level of potential incremental penetration to happen and e-commerce growth once the macro uncertainty stabilizes. So I think that's it on the net revenue retention and then on pricing. I'll pass it over to you, Mariano. I can take it.

But but we also do some upselling most of the upside in that we do naturally is on the take rates we have.

Big incentives to make our customers grow their gym.

Geraldo Tomas Jr.: This is Geraldo speaking. Thank you for the question. I'll do a quick recap about our pricing strategy, and we are here to have long-term relationships with customers. We want predictable pricing. We want our customers to build a business model on top of our pricing, and we want them to be healthy using us with a low total cost of ownership. And this is the origin of us having a price that is a take rate. I think this is very fair.

And if they grow we'll sell them.

But recently we also.

Cause of our R&D efforts, we are developing other kind of add those to the platform so that.

Add on the new products. So that we can upsell customers. The biggest one of them is b to b, we can upsell our customers for <unk> for the distribution area and visits.

This is a very good up sell with them that affects the <unk>.

It doesn't affect the anr, because it's a different story than usually.

But we do also have live shopping we charge a little bit of fixed rate when they are delivering from store.

Geraldo Tomas Jr.: And we model this pricing so that the customer pays a lower take rate as they grow. This is a pricing strategy that we have used since 2012; a very stable price, the ecosystem knows about the price already, and people trust us because of this price structure and the stability of our pricing. So our price, in general, and our price, in general, like every other e-commerce platform, is kind of the same across the globe because other platforms also charge almost the same. We charge mostly the same as well. You mentioned that Shopify is charging more for U.S. customers. I would say we saw that; we saw this happening.

We charge when they are using beacon back app and always usually charge, an extra fee, where when our customer use a feature that is not broadly available among other ecommerce platforms.

No.

This is <unk>.

And this is how we will also contribute to a better and are.

In the mid <unk> and long term selling other products that we develop using your R&D investments.

But most of our and we will continue to come from us grow helping grow into Jim's view of a customer.

Geraldo Tomas Jr.: Shopify deals with a different kind of customer than we do. We deal with more enterprise customers. So Shopify changing its pricing doesn't affect our positioning and competitiveness that much. Naturally, if they increase their pricing, it gives us some room to eventually in the long-term future increase ours as well. But we do believe that the stability in the price is important for us. But we also do some upsetting things. Most of the upsetting that we do naturally is on the take rate.

Thank you for the thorough response guys appreciate it.

And there are no further questions at this time I would like to turn the conference over to Gerardo for closing remarks.

Look ahead to 2024, our dedication to drive innovation remains stronger than ever.

<unk> remains steadfast in supporting our customers' strategic commerce investments.

Extreme growth in boosting profitability, we're true to serve as the backbone for connected Congress dedicated to empowering our customers in achieving their growth ambitions.

Geraldo Tomas Jr.: We have big incentives to make our customers grow their GMV. And if they grow, we will upsell them. But recently, because of our R&D effort, we are developing other kinds of add-ons to the platform. So that's an add-on a new product so that we can upsell our customers. The biggest one of them is B2B.

Latin Americas Internet penetration continues to offer a promising growth opportunity.

We will be focused on strengthening our regional leadership and expanding our presence in the U S and Europe, a lock unlocking further growth for vertex.

Geraldo Tomas Jr.: We can upsell our customers for the B2B scenario. This is a very good upsell with them that affects the – it doesn't affect the A&R because it's a different store, usually. But we do also have live shopping. We charge a little bit of a fixed rate when they are delivering from the store. We charge when they're using the pick-and-pack app. So we usually charge an extra fee when our customer uses a feature that is not broadly available among other e-commerce platforms.

With true by the progress we've made in our global expansion this year, but these journeys fast follower where truly optimistic about the promising opportunities opportunities ahead. This year March just the beginning of what we envision as transformative journey for Vitesse.

Thank you very much for being part of this ongoing journey with us.

Geraldo Tomas Jr.: So this is how we will also contribute to a better NIR in the medium and long term by selling other products that we develop using our R&D investments. But most of our NIR will continue to come from us helping grow the GM view of our company. Thank you for the thorough response, guys. I appreciate it.

We look forward to keep you updated at our next earnings call have a wonderful week.

And this concludes today's conference call. Thank you for your participation you may now disconnect.

[music].

Geraldo Tomas Jr.: And there are no further questions at this time. I would like to turn the conference over to Geraldo for closing remarks. Look ahead to 2024.

Geraldo Tomas Jr.: Our dedication to driving innovation remains stronger than ever. The techs remain steadfast in supporting our customers' strategic commerce investments, fostering growth, and boosting profitability. We're thrilled to serve as the backbone for connected commerce, dedicated to empowering our customers in achieving their growth ambitions. Latin America's internet penetration continues to offer a promising growth opportunity.

Okay.

[music].

We will be focused on strengthening our regional leadership and expanding our presence in the U.S. and Europe, unlocking further growth for the... We're thrilled by the progress we've made in our global expansion this year, but this journey is far from over. We're truly optimistic about the promising opportunities ahead. This year marks just the beginning of what we anticipate as a transformative journey for VITEC. Thank you very much for being part of this ongoing journey with us. We look forward to keeping you updated on our next earnings call. Have a wonderful week. And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Okay.

[music].